The Isle of Man insolvency test — is it time for reform?

With the Companies Bill 2013, which plans to consolidate and update the Isle of Man Companies Acts 1931–2004 (the 1931 Act), and a proposed new Insolvency Bill in the offing, the time is ripe for reform of the Isle of Man corporate insolvency test, found at section 163(1) of the 1931 Act (and applying irrespective of whether a company is incorporated under the 1931 Act or the Isle of Man Companies Act 2006).

A company is considered to be insolvent when it is unable to pay its debts. There are a number of tests for determining when a company is unable to pay its debts and it may be surprising to learn that the Isle of Man test differs from the current insolvency test in England.

In the Isle of Man, a company is deemed unable to pay its debts if it is proved to the satisfaction of the court that the company is unable to pay its debts and, in determining whether a company is unable to pay its debts, the court is required to take into account the contingent and prospective liabilities of the company…

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